Products & Services

K-C has the blues: Gambles that new wrap will be a safe bet

by Curt Werner

Kimberly-Clark, as most Americans know, is an enormous corporation that produces numerous branded consumer items along with respected lines of disposable healthcare products. The company has trotted out an extremely successful lineup of mainstay products that year-in and year-out keeps the company among the top market share performers in its various categories. Both the medical products side of the company, which is based in suburban Atlanta, and the more renowned consumer brands (Huggies, Kleenex, Scott and many others), which is based in Dallas, are steeped in conservative business strategies that support a $13.6 billion giant. Kimberly-Clark Health Care, as the medical products unit is known, had not made a significant acquisition until the late 1990s, as it shrugged off the urge to merge that captured the attention of a fair number of its corporate competitors and made K-C vulnerable to charges that it was losing its strong position in the market. Few new product launches of much significance were made either.

That began to change when K-C plunked down some $900 million for a splashy acquisition of Safeskin Corp., a San Diego-based competitor in the medical glove wars with Asian manufacturing plants and a solid reputation in the exam glove segment. K-C had earlier upped the ante by when it acquired mask-maker Tecnol and Ballard Medical, a Utah-based manufacturer of devices for respiratory care, gastroenterology and cardiology care.

Even with those moves, it is a bit out of character for K-C to make too many alterations in the company’s product offerings. Changes within corporations like Kimberly-Clark seem to come only after glacial deliberation. But in March, the pace of change quickened considerably when in near-rapid fire succession, K-C embarked on two major product launches. One is the Safeskin PF powder-free latex surgical glove and the other is a new line of Kimguard sterilization wrap, the latter representing a complete change in the company’s ultra-successful sterilization wrap lines. K-C believes the new glove line will be a hit in part because it offers damp-hand donning, a feature that the company hopes will set it apart from the crowd of manufacturers eager to respond to growing customer demand for powder-free surgical glove products.

The One-Step wrap line had been in production since 1994, while the surgical glove launch represents another try for Safeskin to break through into the more profitable surgical glove segment after finding good success in exam gloves.

To the user, the launches are likely viewed as improvements to already successful products. But to Kimberly-Clark, the new products amount to a multi-million-dollar gamble, one that the company is counting on to maintain or increase market share and keep product lines fresh in market segments that can only be viewed as mature.

If it was out of character or unusual to much of any degree that Kimberly-Clark opted to invest millions in its healthcare business and upgrade what had in one case already been a wildly successful product line, the big corporation decided upon this undertaking several years ago and made a move that can best be called a calculated gamble. The new sterilization wrap line, in fact, demanded a staggering financial commitment topped by construction of what has to be one of the largest machines of its kind on the planet.

Nested away on a winding road in rural North Carolina near Lexington, NC, in furniture country, the K-C plant that turns out sterilization wrap is as large as Giants Stadium, with one notable exception: The colossal structure has fewer than 250 employees and only a fraction of those men and women work on the huge machines at any one time. Unlike the glove-making facilities in sweaty Thailand populated by thousands of locals who perform endlessly monotonous jobs, the Lexington wrap plant runs nearly on its own, a sci-fi scenario built on machines that run practically without the tedium of human intervention.

“One of our goals here is to have only a man and a dog running the place,” says Robert Ward, an engineer who serves as operations team leader. Ward ushered a reporter, a publisher and a K-C representative on a recent tour of the massive place.
“We need the dog to keep the man from touching anything, and the man to feed the dog.” Truly an automation fan’s dream.

K-C already enjoys a stranglehold on the sterilization wrap market, a number Ward estimates around 95 percent, but more likely falls probably somewhere below that ambitious estimate. But the wrap of old had been just that, the wrap of old and the company decided about three years ago that the line needed rejuvenation. Moreover, it also decided that to make such a move, it would roll the dice, spend the millions in research and development and in construction and planning, not to mention later monies spent in marketing, and come up with a wrap that would be superior to its own unquestioned league-leader.

When the product was ready in early spring, that wrap was not simply offered to end-users in hospitals and other facilities as a One-Step alternative. Instead, the old Kimguard and Spunguard lines were combined and the new wrap has become a total replacement for the wrap that had been a favorite for years. No doubt a risky proposition and one that a company like K-C rarely made. The product had been beta tested in several large hospitals, and K-C officials were confident of its success.

According to Ward, there are just two ways to save money and cut costs in production of a nonwoven product such as sterilization wrap: Use less raw materials or make more wrap. The labor component, as in the minute number of workers supporting such an enormous plant, is extremely small. Interestingly, it is precisely those low labor costs that have kept the K-C sterilization wrap business firmly implanted in this country. Shipping costs that would have to be absorbed to subsidize a move offshore trump the foreign-built strategy and so the jobs that do remain stay in the U.S., making this business something of a novelty in large-scale medical device manufacturing.

There is a major expense in the production of nonwovens, and that is the cost of oil. Since the materials are made from oil derivatives such as polypropylene and monopropylene, when the price of oil rises as it has this year, K-C and other nonwoven producers absorb a hit to their profit margin, thought long-term, well-established contracts with oil companies help mitigate the losses and smooth out costs. And in an era when group purchasing contracts have kept prices low, particularly for items such as sterilization wrap, K-C has limited maneuverability in raising prices to hospitals to pass the oil price hikes along like some segments can.

Ward, a soft-spoken, graying man who appears in his early 40s, has worked for Kimberly-Clark for 18 years. As an engineer, he speaks with noticeable pride when describing the Lexington plant and its capabilities. The factory has walls perhaps 25 feet high and in most areas its machines hum quietly for their size, though safety ear plus are worn inside. A plastic smell is everywhere, though milder and much less disturbing than an acrid, burning plastic odor. The floors are clean and swept and the only people visible seem to be personnel who conduct never-ending tests of the materials along with a few workers hauling the odd palette.

The new Kim-guard Wrap, he tells us, is 15 percent lighter, but significantly softer yet stronger and less prone for tears than the previous wrap lines. Plus, the product is manufactured with a process that requires less oil.

But what had to be the biggest challenge, beyond the construction of the machine for an undisclosed sum (“Between $1 million and $100 million,” Ward says cagily), is the marketing challenge that the new product represents. Old wrap out, new Kimguard wrap in. Like it or lump it.

K-C is betting that hospitals will like the new sky blue colored product, which comes in several sizes and has other upgrades. The jury is out in the early going, but the general feeling is that the product might lose a few customers who are unwilling to change wraps, but gain a few others and in general maintain their market superiority in this segment. 

HPN

May